The XJO is expected to open higher this morning despite a small pullback in the U.S overnight.
Yesterday we overshot to the downside, likely led by strong selling in our overvalued banks. Considering the U.S was only marginally in the red, and their futures are flat this morning, it seems reasonable our market takes a breather here.
We should open near 8,350 – a pivotal point for our market that has played out both historically and in recent history. This is also where the 50 day MA roughly comes in – a point of comfort for our market.
Unemployment figures came in as expected yesterday at 4.1%. Though it grew from the previous reading of 4%, our economy practically remains at full employment. The big event dominating our market however is our key banks finally selling. This has been long overdue.
CBA and ANZ have fared the best since the selling began, falling about 7.5%. WBC has fallen about 10%, and NAB, a devastating 15%. All of which has happened in about five sessions. Aside from NAB, these pullbacks are a technically a correction (~10%), which is typically a healthy pullback in an uptrend – though the speed at which these banks have corrected has been jarring.
WBC has returned to their 200 day MA, and NAB and ANZ are trading below it. In other words, if you were to buy NAB and ANZ today, you would be buying it at a discount to the average price it has traded at for the past year.
The major four have retreated to key levels of support. They seem likely to pause here for the moment, hence the soft positive open for our market. However, it would be still very easy to argue they remain overvalued, and therefore reasonable to suggest further selling is around the corner.
This ultimately puts major pressure on our broader index. For a moment there, it seemed like we would stop running our own race and go back to trading alongside the U.S, but with fear coming into our largest sector that was short lived. For the XJO to hold ground in the face of selling in our Financials, our other major sector, the Materials, would likely need to come online and start moving higher.
There is some hope here. The XMJ (our Materials sector), largely dominated by BHP, has started to form an uptrend since the lows back in early Jan. It continues to hang around the convergence of the key moving averages, but if they can at least hold ground and trend higher, will help combat any further selling in our Financials.
Taking a step back however, things continue to look grim. Realistically our market should be trading closer to 8,000. The earnings season has practically confirmed that our market is trading at a premium (something we have known for a good while now). Coupled with the RBA unwilling to promise further cuts at this stage, our market has little to be hopeful for. However, this level of rationality has escaped the market for months now, and this short-term tantrum from our banks could easily be seen as an opportunity to buy in at better levels. Even though we should be trading lower, our market has not cared, and it may not continue for a while yet. Realistically, we should expect a relief rally in the immediate term, with a potential move back to 8,400 or 8,450. Of course, we would likely need to see the U.S maintain optimism.
US Markets
US shares closed lower overnight, but once again they were able to regain much of their losses by the close of the session. US shares were dented by a report from Walmart that gave lower than expected earnings guidance. US shares are definitely overpriced, but momentum remains to the upside. Even with the overnight move the SP500 initially traded below the recently broken resistance level, but it bounced back above that resistance to hold it as support. We will likely get a spike down at some point and probably soon, but the spike lower will also probably be short-lived as prices are being dragged higher by government spending, which is unlikely to change soon.
Only four of the eleven sector groups of the SP500 closed higher overnight, with Energy the strongest performer, followed by Real Estate stocks. Financials saw the most selling, followed by Discretionary stocks.
Technically, the SP500 broke back below the previous all-time high resistance level which sits just above 6,100, but it rebounded throughout the session to hold this level as support. This should indicate further upwards movement, though we will need to see this confirmed by another bullish bar rising off this line.
Want to continue reading?
This is only an excerpt from todays TradersCircle Members Morning Market Update and doesn’t include the key data and charts our traders are keeping an eye on every day. Become a member today for this plus full length mid-day and end of day updates, trade recommendations, trade group webcasts, and much more!